InspireMD, Inc. — Q3 2018 Form 10-Q
Reporting period: Three and nine months ended September 30, 2018. Unaudited financial amounts are in U.S. dollars, thousands, except per-share data. InspireMD develops and commercializes MicroNet-based vascular stent products, primarily CGuard EPS and MGuard Prime EPS. Products are sold through distributors in international markets; none may be marketed in the United States.
Financial performance
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Revenue | $769 | $718 | $2,779 | $1,927 |
| Gross profit / margin | $198 / 25.7% | $153 / 21.3% | $768 / 27.6% | $374 / 19.4% |
| Operating expenses | $2,177 | $2,238 | $6,173 | $7,157 |
| Operating loss | $(1,979) | $(2,085) | $(5,405) | $(6,783) |
| Net loss | $(2,011) | $(2,086) | $(5,027) | $(6,939) |
| Basic and diluted loss per share | $(0.05) | $(6.56) | $(0.32) | $(30.42) |
Revenue growth was led by CGuard: sales increased 14.8% in Q3 and 72.5% for the nine-month period. MGuard sales declined 14.0% in Q3 and 16.5% year to date, reflecting physician preference for drug-eluting stents. Gross margin improved year over year, attributed to product pricing and component costs in Q3, and more efficient use of manufacturing resources year to date.
Cash, liquidity, and financing
- Cash and cash equivalents were $11,247 at September 30, 2018, versus $3,710 at December 31, 2017. Working capital was $10,714; current assets were 5.5 times current liabilities.
- Nine-month operating cash use was $5,803, compared with $6,356 in 2017. Investing cash flow was approximately zero. Financing provided $13,351, principally from equity and warrant offerings, net of preferred-stock redemptions.
- The company reported no interest expense for the 2018 periods and no long-term borrowing balance on the balance sheet. The filing states its remaining loan was repaid in March 2017.
- Three 2018 offerings generated substantial capital. The July offering provided approximately $8.7 million net proceeds before proceeds, if any, from warrant exercises; the company used about $2.264 million to redeem Series C and D preferred stock. Cash-flow disclosures report $16.365 million in aggregate net proceeds from share and warrant issuance and exercises, alongside $3.014 million in preferred-stock redemptions.
- The company had 36.694 million common shares outstanding at September 30 and reported 37.604 million as of November 5. At September 30, Series D warrants were exercisable for 40.333 million shares and 3.317 million pre-funded warrants remained outstanding. Preferred-stock conversion terms include anti-dilution provisions.
Material changes and management outlook
- Nine-month net loss narrowed by 27.6%, reflecting lower operating expenses, higher gross profit, and $378 of financial income, including a $438 gain from revaluation of an embedded derivative. Q3 net loss improved only modestly.
- Management said available resources were sufficient to fund operations only through the end of Q3 2019 and disclosed substantial doubt about the company’s ability to continue as a going concern. It expects continued losses and negative operating cash flows until products, primarily CGuard, reach commercial profitability. Plans include further commercialization and raising equity, debt, or strategic-partnership capital; success is not assured.
- Management’s priorities include expanding CGuard commercialization and pursuing U.S. market entry, including further testing and an IDE submission for a U.S. clinical trial. No specific financial guidance was provided.
- NYSE American had accepted a plan requiring the company to regain certain equity and net-income listing compliance by February 17, 2019. The low-share-price listing deficiency was reported resolved in July 2018.
- The company adopted ASC 606 on January 1, 2018, with no effect on initial application. It expected the new lease standard, effective in 2019, to add an estimated $600–$700 in right-of-use assets and lease liabilities.
Risks, contingencies, and other items
- A distributor sought compensation related to a 2014 voluntary field action. Management assessed a reasonably possible loss ranging from a minimal amount up to €1.075 million.
- A former service provider, Medpace, seeks $1.968 million plus related costs. InspireMD disputes the claim, has asserted counterclaims seeking damages believed to exceed $3 million, and reported that motions remained pending. Management stated in the financial-statement note that a loss was neither probable nor estimable.
- Key business risks include ongoing financing needs and dilution, commercial adoption and reimbursement, regulatory and clinical outcomes, competition, manufacturing concentration and quality requirements, foreign-exchange exposure, and potential disruption from hostilities in Israel.
- Management concluded disclosure controls were effective at the reasonable-assurance level and reported no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Cash runway and financing needs, especially the stated Q3 2019 funding horizon and access to additional capital.
- Whether CGuard growth and gross-margin improvement can continue, and whether MGuard’s sales decline persists.
- Potential dilution from preferred-stock conversion features, outstanding warrants, and future financing.
- Progress toward NYSE American listing compliance and the U.S. IDE and clinical-trial pathway.
- Developments in the Medpace dispute and the distributor-related contingent exposure.